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Sec. 501(c)(4) Regulations Will Be Reproposed Following Outpouring of Public Comments

The
IRS received an overwhelming flood of comments in response
to proposed regulations it issued last November on the rules
governing the political activities of Sec. 501(c)(4) social
welfare organizations. As a result, the IRS announced that
it will repropose the regulations, after taking the comments
into account, and will not hold a public hearing on the new
rules until they are reproposed. The regulations (REG-134417-13) were proposed to address,
among other things, how much political campaign intervention
a social welfare organization could engage in without
jeopardizing its exempt status. (See here
for prior coverage.)

To qualify for exempt
status, Sec. 501(c)(4) requires that a social welfare
organization must be “operated exclusively for the promotion
of social welfare.” The current final regulations, however,
merely require that an organization operate “primarily for
the promotion of social welfare” (Regs. Sec.
1.501(c)(4)-1(a)(2)(ii)).

IRS mishandling of
applications for exempt status under Sec. 501(c)(4) was the
subject of much controversy last year, when it was revealed
that the IRS had inappropriately singled out for scrutiny
certain groups based on terms in their names, such as “tea
party.”

According to an
update posted on its website, the IRS received over
150,000 written comments on the proposed regulations, the
most it has ever received for a proposed tax regulation.

Answering this unprecedented response, and
“[c]onsistent with [its] standard rulemaking process,” the
IRS says it intends to consider all those comments carefully
and make any necessary changes, and then issue revised
proposed regulations. Only then will it schedule a public
hearing.

“Given the diversity of views expressed and
the volume of substantive input, we have concluded that it
would be more efficient and useful to hold a public hearing
after we publish the revised proposed regulation,” the IRS
said in its announcement. The original proposed regulations
requested comments by Feb. 27, 2014, that would have been
addressed at a public hearing that was never scheduled.

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